Rewarding excellence and creativity

Scientists and technicians can be an ornery bunch. Heads bent over arcane machines or swirling solutions in test tubes, they are not easily impressed by the management fads of the "suits" who come and go over the years that it takes to turn an idea into a winning product.
But when the board of 3M hired its first outsider as chief executive in 2000, it was a revolutionary change for the 100-year-old company.

James McNerney had come from General Electric and immediately set about implementing a GE-style Six Sigma process improvement campaign, sacking 8000 workers and tightening spending. Profits grew on average

22 per cent each year, vindicating his approach among shareholders.

But there was a lot of grumbling in the ranks. Scientists started complaining that, while the company was no doubt more efficient thanks to the focus on process, invention is not a process.

3M is famous for coming up with products such as Post-it Notes, Scotch Tape, Thinsulate linings, and the reflective glass-bead technology that goes onto street signs.

It is equally renowned for its workplace culture that fosters innovation and gives its scientists and technicians an unusual degree of freedom and autonomy - including the "15 per cent time", which is the proportion of the week researchers are able to turn away from other work to focus on their own projects.

They often don't even have to notify their managers about their own projects done in this time, and successful outcomes have included Post-it Notes and Scotchguard Fabric Protector.

This practice has been picked up by Google, which has upped the ante to 20 per cent.

During McNerney's 4 1/2-year leadership, the rate of innovation slipped. While the company had aimed to get at least one-third of its sales from products released in the past five years, that proportion fell to one-quarter.

George Buckley, McNerney's successor, and a chemical engineer from the UK, has spent the past three years trying to reverse that particular trend, increasing the spending on research and development and handing freedoms back to the scientists.

"Invention is by its nature a disorderly process", Buckley told US magazine BusinessWeek in 2007. "You can't put a Six Sigma process into that area and say, 'Well, I'm getting behind on innovation, so I'm going to schedule myself for three good ideas on Wednesday and two on Friday'. That is not how creativity works."

Art Fry is the scientist (now retired) who came up with the Post-It Note while in church, wondering how to put removable bookmarks into his hymnal. It took several years for his idea to make it to production and he told BusinessWeek it can take up to 6000 raw ideas to find one successful business.

A senior lecturer in organisational behaviour at the Australian School of Business, Julie Cogin, says 3M is a "great success story" about building innovation into a corporate culture. Central to its success, she says, is its "seven pillars of innovation" which include: the commitment to research and development (3M devotes 6 per cent of revenue to R&D, equating to $US1.4 billion last year), hire good people and tolerate mistakes, have a broad base of technology expertise which will allow them to take innovation in one area and transfer it to another realm, networking among researchers so they are familiar with each others' projects, rewards for outstanding work, quantify efforts to work out whether research funds are being spent wisely, and spending time with customers to understand their needs.

"The people there have quite a bit of autonomy in how they undertake their jobs," says Cogin.

In fact, if a researcher has been denied funding for a project, there are a number of other sources they can go to including other business units and internal grants of up to $US100,000 ($150,000). This means that projects dismissed by just about everybody can be kept alive throughout the years until, perhaps, they can be put to good use.

The first pillar - the people part - is interesting: 3M is a company of 79,000 staff that largely promotes from within. Even in Australia (an outpost of 650 people in sales and marketing, implementation and a small research facility), staff turnover is so low that the unrenovated headquarters at Pymble, in Sydney's north, seems mostly staffed by people with more than 10 years' tenure.

The general manager Cuno (filtration products), corporate marketing and IT, Gordon McRonald, says Australian staff turnover has historically been around the very low 5 to 7 per cent, but climbed to the still low 10 to 11 per cent in the past three years, due to skills shortages and competition from other employers.

"We had some internal issues as well," McRonald adds, saying the rate of people leaving was slowing once again. "It is back under 10 per cent."

Another unusual aspect of the company is that it boasts on its website that of all its staff worldwide, only 300 are working in a country that is not their own.

The reason this is important is that 3M wants to raise its international operations from the ground up, staffing them with people who understand the local markets.

McRonald says it is only those at the very top of the organisational structure in each country that are rotated around the globe to give them experience in the 35 business units that make up 3M.

The matrix structure of reporting also gives a healthy balance of power between country chief executives and the divisional heads in the US. This structure can be confusing for people who are accustomed to managing in other companies, argues McRonald, and is one reason why it can be better to promote from within - it takes some time to learn how to navigate the matrix.

The CEO of the Australian operations, Paul Madden, says the matrix structure is a reality check. "Someone gives you another view on your short-term decision making."

The company is also being an innovator in its hierarchical structure, using a "dual ladder" system to allow its people to progress in their careers without having to move into management.

McRonald says that technical people are graded from T1 to T8, depending on seniority. But because so little research is done here, in Australia the highest grade is T5 and then they must travel to a bigger research centre to get a higher grade.

The T5 level is equivalent to a senior manager position and compensated accordingly, says McRonald. "It allows them to be good at what they do and not have to manage. To some degree, we also do that in finance, IT [information technology] and customer services."

In terms of recognition, the company has a number of awards, rather than financial incentives, but being designated "corporate scientist" is viewed as a "fantastic" achievement, says Madden.

Cogin says there is a danger that overly stable workforces - where people seldom leave - can result in a lack of new blood and new ideas.

However, 3M's close "partnership" with its customers seems to be able to counteract this, she says.

"This is a gigantic organisation," she says. "But it has retained the growth potential of a small venture. It has remained nimble."

McRonald says the wealth of businesses in the company means that people move around into new areas and get the challenges they might have sought by going to another employer.

While there is only a small amount of research and development being done in Australia, 3M is growing its research operations into other parts of the region, he says.

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